About $1 billion of mortgage payments deferred each month during pandemic: CMHC

OTTAWA – About $1 billion worth of mortgage payments were deferred each month during the pandemic, Canada Mortgage and Housing Corp. said on Thursday.

The calculation, released in CMHC’s annual residential mortgage industry report, is based on Equifax Canada’s estimate that the average monthly mortgage payment in Canada is $1,333.

CMHC also said that it also expects fewer Canadians to get ahead on their mortgage payments this year, compared with 2019, a trend that will add to the national level of mortgage debt by the end of this year.

By the end of the second quarter, relatively few people were defaulting on their mortgages, although CMHC said it is expecting a rise in delinquent mortgages as deferral programs come to an end this fall.

CHMC’s report comes as the financial industry is closely watching how homeowners react to resuming deferred mortgage payments.

When asked about housing activity at a Thursday press conference, Bank of Canada Governor Tiff Macklem told reporters that household credit growth is still ”quite modest” at the moment.

”Incomes have been reasonably well-sustained, consumption has slowed, and so savings overall in the economy have gone up. That’s helpful in reducing vulnerabilities,” said Macklem on a conference call.

”Having said that, we’ve been very clear at the Bank of Canada, we’ve underlined the vulnerabilities caused by household indebtedness and too much reliance on the housing sector. Those have not entirely gone away, but when you look at our policy response _ the best predictor of whether somebody is going to repay their mortgage is whether they have a job.”

A Sept. 9 note by RBC Economics suggested that by the end of July, many Canadians had already resumed mortgage payments. Among the country’s six major banks, 12.4 per cent of mortgages were deferred, down from 15.2 per cent at the end of April, wrote RBC senior economist Josh Nye.

But while high-income households have taken advantage of low interest rates and lockdown savings to pay down debt, Nye’s note said that lower-income households are still struggling with existing debt levels, coupled with job losses related to low oil prices and the pandemic.

Nye noted that even before the pandemic, insolvencies jumped in both Newfoundland and Labrador and Alberta, while Saskatchewan led the country in mortgage defaults.

Canadians under the age of 35, meanwhile, have been more likely in recent years to carry mortgages that are harder to refinance, said Nye. Younger mortgage holders have less equity, their loans are more likely to be much higher than their income, and they tend to have more years of repayment ahead of them, Nye said.

CMHC’s report suggested that, depending on how the lender accommodated them during the COVID-19 pandemic, about 20 per cent of consumers said they were mulling moving their mortgages to a different lender. That data, cited by CMHC, stemmed from an April FIRM Residential Mortgage Survey by Altus Group and Ipsos.

CMHC also said that after interest rates were cut this year, variable rate mortgages gained popularity in April and May of this year.

Home Capital Group Inc. chief executive Yousry Bissada, who spoke at a conference on Wednesday, said that many of the borrowers who opted for Home Capitals’ two-month mortgage deferrals this summer had FICO scores of 700 and above.

Despite a huge rush to defer payments during the early stages of the pandemic, Bissada said at the conference that after four to six weeks, most borrowers opted to begin repayment – after considering interest costs, savings from reduced spending on restaurants and vacations, or government support payments.

Bissada also said that lenders who have equity in homes have an incentive to renegotiate terms to accommodate borrowers going forward.

”The trend seems to be quite positive,” said Bissada at the Scotiabank Annual Financials Summit.

– With files from Jordan Press

Report highlights:

Mortgage lending trends

• The acceleration of the total outstanding mortgage debt during the first half of 2020 partially reflected the trend in sales concluded before the pandemic-induced shutdowns and mortgage repayments.
• Canadian financial institutions have provided mortgage payment deferrals for up to six months to assist mortgage customers during COVID-19. These measures have resulted in a total of 760,000 deferred or skipped mortgage payments across chartered banks.
• As many non-bank financial institutions allow deferrals, we expect the total number of mortgages deferred to be higher. For example, there were 10% of deferral requests across Mortgage Investment Corporations (MICs).
• Mortgage deferrals will affect scheduled periodic repayments. With the average monthly payment being approximately $1,333 in Canada, the total amount of deferred mortgage repayments is estimated at slightly over $1 billion per month.
• There continues to be a risk that a significant increase in mortgage delinquency will be observed in the third or fourth quarter of this year as these deferral agreements come to an end.

Mortgage rate trends

• The overnight rate was cut by 150 basis points to help households and businesses through the economic disturbance. As a result, mortgage interest rates dropped in April 2020 on both variable-rate and fixed-rate mortgages.
• The widening positive gap between fixed and variable mortgage rates made variable-rate mortgages increasingly popular in April and May.

Mortgage insurance trends

• The upward trend in uninsured mortgages continued into the first quarter of 2020, as 63% of mortgages extended by chartered banks were uninsured.
• Portfolio-insured mortgages accounted for 31% of all insured mortgages from chartered banks at the end of 2019, down from 35% in 2018.
• Across non-bank mortgage lenders, the value of insured mortgages decreased slightly (1%) during the last quarter of 2019 compared to a year earlier.

Mortgage lender type trends

• In 2019, Canada’s big six banks maintained their strong foothold in the housing finance market, with a 67% market share of newly extended mortgages.
• Mortgage Finance Companies (MFCs) hold 20% of the insured mortgage space and credit unions stand at 12%.
• Mortgage delinquencies of 90 days or more remained at low levels for all mortgage lender types, which suggests that a steady share of mortgage holders continued to be able to make their payments or were able to defer their mortgage payments.
• MICs continued to represent 1% in nationwide outstanding mortgages, valued at approximately between $14 billion and $15 billion in mortgage debt.
• Some MICs offered mortgage deferrals and other types of accommodations to financially strained mortgage consumers. An estimated 10% of mortgage consumers asked for a mortgage deferral.

Mortgage funding trends

• Deposits continued to be the primary source of mortgage funding for the big six banks (66%) and credit unions (77%).
• Covered bonds made up 17% of total mortgage funding for Canada’s big six banks at the end of the first quarter of 2020, representing an increase of 4% from 2019.

Private securitization, continued to account for a very small share of the mortgage funding mix in Canada, with just 1.1%. However, the residential mortgage-backed securities market appears to be expanding.